End Of China's MoneyGram Deal Highlights U.S. Worries About Private Data

A shop worker places a sign for 'MoneyGram' outside his store on Moore Street in Dublin, Ireland. Photo: Paul Thomas/Bloomberg

Concerns about how private data may potentially be wielded by foreign countries likely played a role in Washington’s rejection of the purchase of money transfer firm MoneyGram by Ant Financial, an affiliate of China Internet giant Alibaba Group, according to a long-time U.S. expert on China business.

“We have new concerns arising about what previously might have been seen as purely commercially-oriented transactions because of the evolving nature of technology and how it could be used by states,” Daniel Rosen, a partner at New York-headquartered research firm Rhodium Group, said in an interview. Rosen was senior adviser for international economic policy at the White House National Economic Council and National Security Council in 2000-2001 and is currently a member of the Council on Foreign Relations, and board member of the National Committee on US-China Relations.

“Given the role that access to private data has played in the past several years and how much security concern there is around private data,” deals like MoneyGram are more likely to invite security reviews, he said. “We see firms and states putting tremendous emphasis on data for its own sake and investing themselves and their capital in the acquisition of data. It’s valuable. That’s a big theme of the day.”

The $1.2 billion MoneyGram deal – declared off by both sides this week -- arose at a time when other proposed China purchases were being viewed with heightened concern by the U.S. defense community, such as the attempted acquisition last year of Lattice Semiconductor. “Some transactions (are) too high tech for the defense community to be comfortable. This is not just an American phenomenon,” he said.

“In the U.S., Lattice Semiconductor stands out,” Rosen said. “It’s easy to understand what the nature of the concerns are. It’s the semiconductor industry.” Beyond technology concerns, tighter U.S. screening of China investment is happening now that more positions are being filled that involve the U.S. Committee on Foreign Investment, the main American government screening body for foreign direct investment.

Though trade relations between the U.S. and China have expanded enormously in the past three decades, the eased framework that made that possible in the past isn’t one that will necessary last.

“More than any other time in the past 25 years, we see today that these things are not irreversible when countries come to different conclusions about the benefits to them,” Rosen said. “It’s possible to put things in reverse, even when it seemed just recently that integration was universal and inevitable. We must remember that international trade and cooperation are choices. It’s not automatic in our world today. We’ve had a comfortable couple of decades, especially from an American perspective, because globalization brings tremendous benefits. But it’s not automatic, and it requires positive support, because there are competing points of view about the benefits. We’re a democracy, things get debated and things can be changed.”

Looking ahead, it’s “very difficult” to say how Chinese investment in the U.S. will play out in 2018, Rosen said. Last year, China inflows declined amid tightened capital controls at home owing to Chinese government concerns about the use of capital and balance of payments problems at home.

“There are powerful forces pushing in both directions for 2018. 2017 was a surprisingly light year for Chinese investment, mostly due to Chinese policies -- not due to American, European, Australia, Japanese or anybody else’s policies. It was mostly due to Beijing. We have already seen some signs of recovery. Fundamentally, Chinese investment around the world is underweight relative to its economic heft,” Rosen said. Japanese brands, for instance, are well known in the U.S., whereas China only has a handful such as Tsingtao Beer and Lenovo. “There is a very long way to go before China is normal in terms of its presence,” he said.

On the other hand, there are national security concerns about technology purchases as well as questions about the identity and ownership of some of the businesses that have been acquiring U.S. assets. In some cases, “we just don’t really know who they are,” Rosen said.

Current complaints about China’s international trade and economic policies from Washington by and large aren’t new, however, nor are “just American-- it’s almost exactly the same type of concerns being expressed in Europe by the Germans, the French, the British to some considerable degree, and others. We don’t have U.S.-China trade issues; we have China trade issues with the more advanced economies which are pretty widely recognized.

“The question is what is the right way to proceed? Whether to do so in an aggressively unilateral manner as President Trump has proposed, or a more multilateral manner. Multilateralists -- even on the Chinese side – need to make the case for why the world should stand by the multilateral solutions," he said.

On balance, Rosen is an optimist: If misgivings can be resolved, “there is every reason to look forward to many years of significant (international) growth in Chinese investment, in the U.S. particular,” Rosen said.